Thursday, August 16, 2007

Shipping rates for oil are plunging as turmoil in credit markets threatens growth, while the cost to haul bulk commodities such as coal and grain rises to a record because of increased demand in China and India.

Concern that falling stock prices may cause economic expansion to slow, reducing fuel demand, caused crude oil to fall more than $2 a barrel today. U.S. oil prices have dropped 11 percent since reaching a record $78.77 on Aug. 1.

This worry, coupled with a traditionally slow summer tanker season, has had an effect on spot oil-tanker rates. The cost of shipping Middle East crude to Asia has fallen by half since March, and rates in the Caribbean, where ships from Colombia, Venezuela and Mexico ferry oil to U.S. refineries, have fallen 41 percent since July 23.

``Dry bulk is on fire,'' Omar Nokta, a managing director at Dahlman Rose & Co. in New York, said in an interview. ``If you put a dry-bulk tanker away (on contract) for three years, you get 20 percent returns. For crude, its 12 percent.''

Rising raw material consumption led by China and India and port bottlenecks in countries including Australia and Brazil, have been pushing the overall Baltic Dry Index to records since Aug. 10. The line of ships waiting to load cargoes in Australia's Newcastle, the world's biggest export harbor for coal, rose to 55 on Aug. 13 from 51 a week earlier, Newcastle Port Corp. said.

Shipping Costs

The Baltic Dry Index, an overall measure of commodity- shipping costs on different routes and ship sizes, added 1.2 percent to a record 7,319 today, according to the Baltic Exchange.

The index has risen 66 percent this year. The rate of hiring capesize ships, the largest type of bulk carriers, rose to a record with gains trickling down to smaller vessels.

``The previous 2008 assessment for capsizes was for an average of $82,000, and now that's changed to $98,000,'' Nokta said. ``At the same time all these dry bulk stocks are down. It's running contrary to what is happening.''

The Baltic Capesize Index, a measure of rates for that class of vessel on different routes around the world, advanced 1.8 percent to a high of 10,010 today, according to the London- based Baltic Exchange. The rate to hire a capesize carrier, which typically hauls 175,000 tons of goods, increased $2,637, or 2.3 percent, to a record $118,425 a day on average, data from the Baltic Exchange showed.

The Baltic Supramax Index, made up of five time-charter routes for that type of vessel, which can haul between 50,000 tons and 59,999 tons of goods, gained 0.3 percent to 4,801. It's been setting records since July 13.

Handysize Rates

The Baltic Handysize Index, which tracks rates on six routes for that type of ship, gained 0.4 percent to a record 2,468 today, according to the Baltic Exchange. It's been closing at daily highs since July 18.